Why Is the US So Silent on the Yen?

The yen's rapid descent over the last few months has had all sorts of ripple effects, from denting Korean exports to spurring other countries to contemplate changes in monetary policy. Sure enough, complaints have surfaced around the world.

Just not in Washington.

American policymakers have been conspicuously silent on the yen's decline, even as imports from Japan rose close to 12% in 2012, giving Japan a roughly $58 billion trade surplus with the U.S. in a year when it was importing enormous amounts of fuel.

Neil Mellor, a currency strategist at Bank of New York, has an idea why.

Mellor notes that 2012 was the second consecutive year Japan recorded an overall annual trade deficit. He theorizes that "perhaps it has therefore struck some U.S. lawmakers that modest USD revaluation may be a small price to pay for the chance of a world in which a stronger Japanese recovery helps to alleviate the dearth in demand." In other words, the idea may be that it's worth a bit of dollar strength if it helps Japan's economy recover and boosts Japanese demand for U.S. goods.

Of course, the U.S. silence could be due to something else as well. Mellor points out that as the rise of the Chinese yuan has stalled, "Washington has neither moaned nor demurred despite a decade of intense machinations between the two states on this very subject," and he thinks that's because there is a view that "silence is the best way to ensure China's progress on reform."

It's possible, Mellor says, that policymakers have decided that jawboning about a weak yen could be counterproductive. It may also be the case that the U.S. feels a bit outflanked. Japan has started talking about its stimulus efforts as a way to forestall deflation, much as the Federal Reserve's rhetoric has been about recovery rather than currency levels. Perhaps, Mellor says, "the US' silence on Japan's extreme policy manoeuvres has been engineered by Tokyo's careful replication of its own approach."

Whatever the reason, U.S. policymakers are keeping quiet - and the slide is continuing.